Last week, I took a holiday in the Philippines. I spent 4 days on the famous white beach in Boracay and 2 days in metropolitan Manila. It is always interesting to observe the foreign country way of life and culture. I have thus pen my observations and thoughts in this post. Of course this blog is about investment, I shall focus the content on the economics and business of the country.
Getting there – Cebu Pacific Air
A good place to start is how did I get there? I took a budget airline, Cebu Pacific Air, to Manila. It cost me around S$200 to Manila and another S$200 to transit to Caticlan airport, near the Boracay Island. Cebu Air (listed on PSE) appeared to be the dominant player in the domestic flight market in the Philippines. I judged based on the number of check-in rows in Terminal 3 of Ninoy Aquino International Airport which they took up more than half of the space there. My friend who traveled frequently commented that the flight was good and on time, which is unlike Tiger Airways, notorious for flight delays. 1 out of the 4 flights that we had was delayed. The crew was professional and the process was efficient. There was an incident where a rowdy client showed his displeasure on the counter staff when he was told his luggage exceeded the weight limit. The counter staff was polite and she gave us the same warm smile, seemingly not affected by the incident. Cebu Air is owned JG Summit Holdings (PSEi component stock). John Gokongwei (#3 in 2010 with US$1.5 billion) is the owner of JG Summit, a big holding company. Given the sheer population size of Philippines, Cebu Pacific Air is primed as the largest budget airline in Southeast Asia. The main competitor in Philippines domestic flight market would be Air Philippines Express, part of Philippine Airlines, owned by Lucio Tan (#2 in 2010 with US$2.1 billion).
Telecommunications – Globe Telecom
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Upon reaching, my cell phone was automatically connected to Globe Telecom (PSEi component stock). The company is owned by SingTel (47%), Ayala Corporation (32%) and by the public stockholders (21%). Ayala Corporation (PSEi component stock) is owned by Jaime Zobel de Ayala (#4 in 2010 with US$1.4 billion). Ayala Corporation is the largest company by market capitalization. Not sure if it is due to the affiliation with SingTel (my line is SingTel), my phone automatically connected to Globe Telecom. The coverage is good where ever I went to. The only issue was that the other party was not able to hear me at times. SMS was not an issue at all.
Food and Beverages – Jollibee & San Miguel
We saw Jollibee at the airport and my friend mistook it as the Singapore’s Jollibean. After traveling around Philippines for a few days, we noticed there were not many McDonald’s restaurants but we saw more Jollibee eateries dotted around Manila. Jollibee is a fast food restaurant selling burgers and fried chicken. It was founded in 1975 by Tony Tan Caktiong (#6 in 2010 with US$980 million). It is currently the country’s largest fast-food company. The famous Philippines home-grown beer is San Miguel, which is also the country largest F&B company. The major shareholder is Eduardo Cojuangco Jr. (#10 in 2010 wiht US$760 million).
Accomodation – 7Stones and City Garden Suites
In Boracay, I stayed at 7stones, which was built just 2 years ago and managed by Fuego Hotels & Properties. It even advertised a last unit for sale in the resort. Not sure how it works, and if it serves as one of the hotel rooms and collect ‘rent’ on behalf of the owner. There is internet connection at the hotel. In fact, almost all the hotels offer free internet connection which in this internet dependent era, it has become a necessity. The only problem is that connectivity is not that fast, it was okay at 7Stones but I have to access Gmail in HTML mode at City Garden Suites. Accommodation was affordable. I spent about S$50 per night at 7Stones and S$35 per night at City Garden Suites (both with breakfast). I would rate 3-4 stars for the standards. There were plenty of hotels in Boracay and Manila, and hence, a competitive industry.
Tourism – Koreans and Resort World Manila
While waiting for the transit flight, we were walking around the airport and we saw Resort World Manila (RWM) across the Ninoy Aquino International Airport Terminal 3. RWM is co-owned by Genting Hong Kong and Alliance Global Group (AGG). AGG (PSEi component stock) is founded by Andrew Tan (#5 in 2010 with US$1.2 billion). The Koreans made up the majority of the tourists in Boracay. There were signboards in Korean and Filipinos greeting “an nyoung ha seh yo” to all Asian tourists. Do I look Korean? I am too dark to be one. My speculation is that Philippines is the closest tropical beach to the Korean Peninsula and hence, it is the cheapest and fastest getaway for the Koreans. To develop their tourism, Philippines would need to attract more tourists from other countries and not be too dependent on the Koreans.
Shopping -Robinsons and SM Mall of Asia
In Manila, we stayed near a big shopping centre called Robinsons (not related to Singapore’s Robinsons & Co.). The shopping centre can easily be the biggest in Singapore. Robinsons is owned by JG Summit which was mentioned earlier in this post. It was even more surprising when we were told the largest in Philippines would be the SM Mall of Asia. The retail price tag for fashion and electronics is more or less similar to Singapore’s. Food is much more affordable, about 20-30% cheaper. SM Mall of Asia is the 3rd largest shopping mall in Asia and the 4th largest shopping mall in the world (Ref. Forbes’ World’s 10 Largest Shopping Malls). Henry Sy (#1 in 2010 with US$5 billion) built SM Prime (PSEi component stock) into country’s largest mall developer. Run by son Hans, it’s expanding in China, where it will open a fourth mall later this year. Stock of his SM Investment, family’s biggest asset, up more than 25% in past year.
We saw several banks around the city and Boracay and there was no one dominant bank. Banco De Oro Unibank (PSEi component stock) is the country’s largest bank, and is run by Henry Sy’s daughter, Teresita Sy-Coson. George Ty (#9 in 2010 with US$805 million) founded Metrobank (PSEi component stock), the country’s second-largest lender. The Ayala Corporation owned the Bank of Philippine Islands (PSEi component stock).
Philippine Stock Exchange Index (PSEi)
The Philippine Stock Exchange Index is a capitalization-weighted index composed of stocks representative of the Industrial, Properties, Services,Holding Firms, Financial and Mining & Oil Sectors of the PSE. The index has a base value of 2922.21 as of September 30, 1994. Free-float adjusted as of 4/3/06*New industry classification effective 1/2/2006. Formerly named PSE Composite. The PSEi has already surpassed its peak of 3,861 pts in 2007, which currently stands at 4,176 pts as at 3 Dec 10. It is already in a strong uptrend.
Population of Filippino = 92 million people (ranked #12 most populous country in the world. Large population size mean potential human resource and it could also put a strain on the government resources)
Geography – Near to Indonesia, Malaysia and Taiwan. The Philippine Archipelago is made up of 7,107 islands (good for shipping business?)
Literacy Level – 92.6% of the population can read and write. From the Filipino that we interacted with, most can speak English and all of them can understand English.
Politics – Government structure similar to the US. The Philippines is ranked #134 of 178 in the Corruption Perceptions Index (#1 being the least corrupt). Singapore ranks #3.
Poverty Line – 22.6% of the population is below poverty line (<$1 per day based on International standard). Indeed, once a while we were approached by beggars, especially in Manila.
Investing in Philippines
The business in the Philippines appeared to be controlled by a small group of powerful and rich men. They penetrated and dominated almost all the industries in the Philippines. Holding companies like Ayala Corporation, SM Prime, JG Summit, Alliance Global and San Miguel, are large conglomerates that have multiple investments in various industries. They are really the blue chip industries and very hard for other small companies to compete. In my opinion, only blue chips investors would be interested in investing in these companies, looking for stable dividends and stock prices. Another observation is that looking at the top ten richest people in the Philippines, most of them are of Chinese descent. The weird thing is that, given the population size of the Philippines, the wealth of the richest are not much more than the richest in Singapore. The richest Filipino is worth US$8 billion while our richest Singaporean is worth US$7.8 billion, comparing the Filipino population of 92 million to Singapore’s 5 million. Do the Filipinos get taxed more? Do you know the reason? I leave that to you.